Job-work valuation of pharmaceutical goods must follow cost construction, not the loan licensee's depot sale price.

Pharmaceutical goods manufactured on a job-work basis for a loan licensee were not liable to valuation on the loan licensee's depot sale price because no sale took place between the manufacturer and the loan licensee. In that situation, transaction value did not apply and valuation had to proceed under the residual method on a cost-construction basis, using raw material cost, packing material cost and job charges. The depot sale price of the loan licensee was therefore rejected, and the assessable value was determined on the accepted job-work formula in favour of the assessee.

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Issues: Whether the assessable value of pharmaceutical goods manufactured by the respondent for a loan licensee was to be determined on the basis of the loan licensee's depot sale price or on the cost construction method.

Analysis: The respondent manufactured the goods on job-work basis for the loan licensee, with no sale taking place between them. In such a situation, valuation could not be made under the transaction-value provision and had to proceed under the residual valuation provision. The accepted job-work formula of raw material cost plus packing material cost plus job charges applied. The reasoning was supported by settled valuation principles and by the earlier identical decision of the same Bench, which had treated the supplier of raw material as not being the assessable manufacturer for valuation purposes in the absence of evidence that the loan licensee had hired shifts or otherwise manufactured in the job worker's factory.

Conclusion: The depot sale price of the loan licensee could not be adopted for valuation, and the cost construction method was /appropriate; the issue was decided in favour of the assessee.

Ratio Decidendi: Where pharmaceutical goods are manufactured on job-work basis without sale to the loan licensee, assessable value is to be determined on the cost construction basis and not on the loan licensee's downstream sale price.

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